Correlation Between Waffer Technology and China Metal

Can any of the company-specific risk be diversified away by investing in both Waffer Technology and China Metal at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Waffer Technology and China Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Waffer Technology Corp and China Metal Products, you can compare the effects of market volatilities on Waffer Technology and China Metal and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Waffer Technology with a short position of China Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Waffer Technology and China Metal.

Diversification Opportunities for Waffer Technology and China Metal

0.83

Correlation Coefficient

Waffer Technology  China Metal

Very poor diversification

The 3 months correlation between Waffer and China is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Waffer Technology Corp and China Metal Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Metal Products and Waffer Technology is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Waffer Technology Corp are associated (or correlated) with China Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Metal Products has no effect on the direction of Waffer Technology i.e., Waffer Technology and China Metal go up and down completely randomly.

Pair Corralation between Waffer Technology and China Metal

Assuming the 90 days trading horizon Waffer Technology is expected to generate 1.01 times less return on investment than China Metal. In addition to that, Waffer Technology is 1.67 times more volatile than China Metal Products. It trades about 0.19 of its total potential returns per unit of risk. China Metal Products is currently generating about 0.33 per unit of volatility. If you would invest  3,030  in China Metal Products on December 5, 2024 and sell it today you would earn a total of  285.00  from holding China Metal Products or generate 9.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Waffer Technology Corp  vs.  China Metal Products

Waffer Technology Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Waffer Technology Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

China Metal Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Metal Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, China Metal is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Waffer Technology and China Metal

The main advantage of trading using opposite Waffer Technology and China Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Waffer Technology position performs unexpectedly, China Metal can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in China Metal will offset losses from the drop in China Metal's long position.

The idea behind Waffer Technology Corp and China Metal Products pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.